How Estate Planning Can Help Minimize My Debt for My Beneficiaries
Part of settling an estate requires paying any remaining debts the deceased individual left behind. Depending on the amount owed to creditors and for taxes, the payment of debts can substantially reduce the amount of money that the deceased’s heirs had hoped to receive. In some cases, prized possessions – even real estate – must be sold to satisfy an estate’s debts and obligations.
Proper estate planning includes taking steps to protect your assets from creditors and maximize what you pass along to your intended beneficiaries. The estate planning attorneys of Brady Cobin Law Group in Raleigh, NC, can help you review your accounts, protect assets from creditors, and seek ways to reduce the burden of debt left behind.
At the Brady Cobin Law Group, PLLC, we understand the importance of thoughtful and thorough estate planning for protecting and honoring what you have built over the course of your life. For more than 35 years, our dedicated Raleigh estate planning lawyers have helped people throughout North Carolina plan for their futures and for the futures of those they love.
As we assist clients with estate planning, we pride ourselves on providing compassionate and personalized advice that is tailored to each client’s needs and goals. No matter the size of your estate, our attorneys are ready to help develop an estate plan that minimizes the costs you leave behind.
Schedule a consultation today with a knowledgeable Raleigh estate planning attorney.
What Is Estate Planning?
Estate planning is determining and documenting what you want to be done with your money and other assets, including your personal property and real estate, after your death. In most cases, individuals want to distribute their assets to beneficiaries of their choosing, such as their spouse and children, and perhaps a school or another charitable cause.
To ensure that your wishes are carried out, you need to document them in a last will and testament. A will appoints an executor to oversee the administrative matters required to settle your estate after your death, including distributing the assets as directed.
Our estates must pay any debts we leave behind, such as credit card balances, outstanding loans, and tax obligations. With proper estate planning, your will and other legal instruments ensure that your debt is paid with the least impact possible on the inheritance you intend to leave your beneficiaries.
After Death, What Happens with My Debts?
The executor of your estate must pay your debts and any taxes owed before distributing the remainder of your estate to your beneficiaries as directed by your will. This includes payment of funeral and burial expenses as well as costs required to administer the estate, such as preparing a house to be sold.
If there is money available within the estate to pay taxes and debts and administrative costs, then the executor makes payment and provides an accounting to the Probate Court.
The executor also has the authority to sell certain assets if necessary to pay the estate’s debts. If there isn’t enough money in the estate to cover the debt, it usually goes unpaid.
If there is no will, the court may appoint an administrator and give that individual the power to settle the affairs of the estate. If it is necessary to sell assets to pay the estate’s debts, the appointee may sell off items most easily sold for the most money.
Once debts are satisfied, the remaining assets of an estate whose owner died without a will are distributed according to state laws of intestate succession. The law delineates immediate family members in order of inheritance rights (i.e., spouse, children, descendants of deceased children, parents, siblings).
How Estate Planning Can Reduce Debt Payments and Increase Inheritance
If necessary, the executor of the estate has the authority to sell assets to pay the estate’s debts. However, an executor will typically sell assets that are not identified as specific bequests, avoiding items like an engagement ring meant for a granddaughter. Therefore, a will should make specific bequests, if possible, particularly for the distribution of personal and real property. Of course, you can present such gifts to loved ones while you are both here to appreciate the gesture.
You may specify in your will what assets should be liquidated to pay debts if necessary and in what order they should be sold off.
When it is expected that debt will consume most or all of the estate’s assets, leaving directions as to how to divide the remaining assets equally or in specified percentages among named beneficiaries ensures that the amount distributed is proportioned according to your wishes.
There is no inheritance tax or estate tax in North Carolina. The federal estate tax exempts roughly the first $12 million in inheritance (after which there is a 40% top federal estate tax rate). Few people need to worry about causing their beneficiaries a tax headache.
There are several approaches available to protect your estate’s assets so that they go to your intended heirs. The best approach will vary depending on your intended beneficiaries, their ages, your assets, and other issues. Among the simplest and most popular options are:
- Trusts. You can establish a trust and endow it with assets of your choosing. At your death, a successor trustee you have named will administer the trust in accordance with your directions. Assets within the trust are not a part of your estate. They do not go through probate and cannot be sold off by the executor to pay debts. A trust established to hold assets for minor-age children may release assets at the age of majority and designate a trustee and how he or she should use the trust’s assets such as to pay for education as the child grows up.
- Beneficiary Accounts. You can name specific heirs as beneficiaries of such accounts as IRAs, 401(k) plans, retirement plans, brokerage accounts, or life insurance to create a gift that passes directly to your beneficiary and cannot be used to pay your debts. These are sometimes known as “transfer-on-death accounts,” because the beneficiary assumes ownership of the account upon your death. While you are alive, you remain in control of assets, but the beneficiary takes control immediately upon presenting a death certificate or other documentation.
- 529 College Plans. A 529 college savings plan is a state-sponsored investment plan that enables an investor to save money to pay a beneficiary’s education expenses. The beneficiary can withdraw funds tax-free to cover nearly any type of college expense. Currently, you can contribute up to $540,000 per beneficiary at any rate up to $15,000 per year without incurring a federal gift tax. Investors retain some control over the funds in a 529 plan such as changing beneficiary designations.
- Joint Ownership / Co-signed Loans. If you and your spouse have a joint bank account with the right of survivorship, the money in the account passes to your spouse upon your death. Similarly, if you are jointly responsible for a loan or a line of credit, that debt becomes the responsibility of the surviving spouse, and the creditor has no demands upon your estate’s assets.
Contact Us for a Plan to Minimize Your Estate’s Debt
At the Brady Cobin Law Group, PLLC, our experienced estate planning attorneys understand what is necessary to protect assets, minimize debt and increase the inheritance you leave behind for your loved ones. We have helped many North Carolina families plan for the future and navigate the probate process after the loss of a loved one.
No matter what your circumstances are, we can help make sure your intended heirs reap maximum benefit from all you have worked to build and achieve. Contact our Raleigh estate planning attorneys today at (919) 782-3500 or online.